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How to turn 50K into 300K? 10

RE CE NT P OS TS
Posted onNovember 28, 2014
End?
Books I read in 2014 – Part 3
I finally managed to finish this small project of recording my first video with an
Books I read in 2014 – part 2
Amibroker tutorial giving step by step how to program a lucrative and simple system
Books I read in 2014 – Part 1
that has stood the test of time.
20 Donchian rules for trading
commodities
The system is a classic Trend Following which is the breakout of support and resistance
of Donchian channels. RE CE NT COM M E NTS

Tcnoname on 56 questions of
This video is a preview of what will be the Amibroker and trading systems programming Self Analysis
course that I am planning to develop. If you are interested, just register on the Vela list Júnior César on 56 questions
and you will receive development updates. of Self Analysis
otávio ribeiro de castro on
About
Without further ado below are parts 1 and 2.
Xayer on Release of the
“Complete Guide to
Enjoy and all feedback is welcome. Backtesting”
Ratin on End?
Do not hesitate to comment and make suggestions.
AR CH IVE S

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CAT EGO RIE S

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Australia bear big picture
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— Source: bull Exchange

http://www.saidaonline.com/en/newsgfx/making%20money-
candlestick China
saidaonline.jpg
Crisis
Posted in Basics , Trading Plan | Tagged Graphical Analysis , Cut your losses , Drawdown , Trading
System , Trend Following | 10 Replies
Cut your
losses
Deflation
What's your mindset type? 4
Drawdown
Posted onOctober 31, 2014
Economy
I'm not going to talk about politics, I'm going to talk about mentality.
expectation
DI fund
I am finishing reading an interesting psychology book.
Risk
Mindset: The New Psychology of Success by Carol Dweck.
management
What attracted me to the book was the title that had the words mindset and success
GFC gold
and I wanted to know what their relationship was with each other.
Griffon Hedging
The theory is quite fascinating, however once the theory is explained the book Ibovespa
practically deepens the thesis in various aspects of life and I take advantage of this Financial
quick post to make a mini summary of the book. independence
Inflation
The author divides the world into basically two types of mentality.
Lehman Brothers

The FIXED mindset and the GROWING mindset. Let your

People who have a fixed mindset believe that talents are innate and that people have a profits run
certain aptitude or ease with something and that is why they are brilliant.
market wizard Market
People with the growth mindset believe that skills are hard earned and an individual's Money
potential is not known until he/she tries as hard as he or she can.
Management
You can see the mentality that the book defends as being the healthiest.
Operating in
If you haven't noticed yet, it's the growing mindset. The reasons are many, but basically
it is directly linked to the issue of achieving success and full potential.
the Market
Options Gold Position Size
The fixed mindset, as the name implies, limits the individual and, in other words, even
stops growth. An example is someone believing they have a talent for piano and not for
Trading
sports. She then doesn't even try sports as she thinks it's a waste of time even though
she likes sports. The limitation does not stop there. Even if the person likes it and
Psychology
believes that it is easy for the piano, he becomes disinterested in the piano since it stock market
becomes VERY difficult, because the person who has the fixed mindset believes that
crash
when you have aptitude, the task can never be considered difficult.
The first big problem, then, of those with a fixed mindset is the tremendous difficulty of Recession
dealing with failure and having persistence in the face of adversity.
Mechanical
The individual with the growing mentality sees life with a VERY different perspective, as
Trader
he believes that making mistakes is part of the learning process and that to learn
something you want requires effort and a lot of effort depending on the level of mastery Trading
you want in the subject.
Trading Plan
Translating this theory into trading psychology this makes perfect sense when it comes Trading Secrets
to the process of learning to trade. If you have a belief in the growing mindset, your
attitude towards learning will be quite different, as you will be much better able to deal Trading
with the frustrations of the process. Interest in the subject will not be lost if the process
becomes arduous, tedious, overwhelming, as the desire to be successful is above any System
adversity. Those with a fixed mentality move on to another, because either they
Trend Following
navigate calmly or they give up at the first obstacle.
Trend Trading
In the world of sports, a classic example of the fixed mindset is tennis player John
McEnroe, famous for having a short temper and losing his mind. He had some skill and
Van Tharp
even was number 1 in the world for almost 2 years, until the rise of Ivan Lendl.

— Source:
http://i.dailymail.co.uk/i/pix/2013/06/27/article-
2350304-1A6279C0000005DC-170_306x423.jpg

When Mcenroe lost he always blamed someone else. The climate, the linesman, the
mother, the mother-in-law, because he was talented and if there was something wrong,
it was NOT with him.

How do you think a fixed mindset affects a trader? Was it stuffed? The market's fault!!!!
Soon he will look in the newspaper for an excuse why the market “reverted” to the
average.

Now look at an example of a classic athlete who has the growing mindset.

Michael Journal or Air Jordan. He was highly competitive and still considered the all-
time great in basketball.

To give you an idea, he was cut from his high school basketball team. He give up? Kind
was no longer a child, but almost an adult. After the cut, he began to work harder and
believe that he always had to do his best to be the best. Looks like an F1 driver I know.

” Being a racing driver means you are racing with other people. And if
you no longer go for a gap that exists, you are no longer a racing driver
because we are competing, we are competing to win.” Ayrton Senna
No need to say which mindset I recommend. So if you don't have the growing mindset
what are you waiting for to change it ?

— Source: http://veja.abril.com.br/blog/acervo-digital/files/2010/03/ayrton-senna.jpg

Posted in Psychology of Trading , Trading Plan , Candle's Beliefs | Tagged Trading in the Market ,
Psychology of Trading , Trading System | 4 Replies

The Algebra of Profit two

Posted onOctober 24, 2014

I remember my seventh grade. My math report card wasn't up to snuff. The business
did not enter my head. I even made the silly excuse that my math teacher was chasing
me, as it seemed that I had some mental retardation and passed the subject due to
praying the rosary with my grandmother. Seriously, I preferred playing video games, but
for those who needed to get a 5 to pass, it was the only option.

Anyway, I survived, I didn't repeat a year. I passed the entrance exam and today I earn
money with mathematics, making financial, economic and trading models, of course.

That's when I really started to understand algebra, because I started to see its practical
usefulness. Unless you think money is useless.

But how can I apply mathematical modeling to understand if a trading system is

profitable?

I'll give you an example.

For example expectation of a trading system.

The formula is.

ProbV x GV + ProbP x PP, where

ProbV = Probability of winning trades

GV= Average gain of winning trades
ProbP= Probability of losing trades
PP= Average loss of losing trades

I will give an example

A system that loses 40% of the time and wins 60%.

But when he wins, he wins twice as much as he loses.

So the statistical expectation of the system is:

60% x 2 + 40% x (-1) = 0.8

In other words, for every real risked, the system returns 80 cents.

See that even losing 40% of the time it is possible to make money.

— ACCUMA?

Now would there be a way to develop a model where if I knew the % of success of the
system I would be able to know FAST how much I need to win in relation to the losses
to stay at ZERO to ZERO? Type in English the famous BREAK EVEN.

Of course it does. You only need to pass seventh grade to know this.

Thanks to our Greek friends and the philosophers who invented mathematics and more
specifically algebra, this is possible.

Now using my seventh grade knowledge.

The known variable is = CORRECT PERCENTAGE. Let's call it A.

and what I want to know is Profit relative to loss. Let's call it L.

So my goal is to create an equation that has A and L and then I can figure out the value
of any one of them, as long as I only know one of them.

Let's go.

Throwing the values ​into the expectation equation above.

L * A + (1-A) * (-1) = 0

I played the value zero as that's what we want to know. What is the value of L or A that
makes the system tie, that is, neither wins nor loses.

What we need to do to turn it into a simple equation is isolate the values.

Then,

L * A + (1-A) * (-1) = 0

L * A -1 + A = 0

L*A+A=1

A(L+1)=1

A = 1 / L +1 or

Isolating the L

L = (1/A) -1

Let's test the formula and see if I'd make it through seventh grade.

A = 60% , so

L = (1/60%) -1

L = 0.666

Like this

60% x 0.666 + 40%*-1 = ZERO

WOW! Dear grandma, the prayer WORKED!!!!! Let's play playstation until we drop!!!!

Now using modeling in MS Excel and the scenario tool, something I teach in my book.
COMPLETE BACK TEST GUIDE .

Can I make a graph seeing the relationship of the two variables?

Logical! 🙂

— Mathematical modeling of profit

The chart values ​table

— Profit algebra table

Interpreting the results.

For example, if my system is right 35% of the time, then my average profit has to be at
least 1.86 times greater than the loss for me to go zero to zero and from then on
whatever comes is PROFIT!

Hugs and see you next time.

Peter AKA Pythagoras … oops Vela.

 — Source: forum.thefreedictionary.com

Posted in Reflection , Trading Plan | Tagged Cut your losses , Economics , Expectancy , Risk
Management , Trading Plan , Trading System | 2 Replies

Trend Following – THE BASICS

Posted onOctober 17, 2014

Let's talk about what matters.

Trading strategies and of course the one that interests me the most and in my opinion
the ONLY one that works: Trend Following

By the way, according to Ed Seykota there is no other way to make money in the
Market than following the trend.

By pure definition how is it possible to make money in the Market if it moves against
your position?

Impossible.

Prove me otherwise.

Even the strategy called mean reversion is only possible to make money when the price
returns to the mean and in that little bit the money is made in the price trend, even if it
goes “against” the larger trend.

Like… this seems obvious. No? and is.

All you have to do is know the direction the market is going and place the trade… then
you make money. That simple? No?

No.

It's not that simple and I'll explain why.

The first truth about trend following is the following.

You can only know the size of a trend when it ends.

Looking at the chart after the trend has occurred it is EASY to know where it starts and
where it ends. Even a totally mentally retarded person can see it. Even an amoeba can
do it.

But unfortunately they still haven't invented the time machine.

And the question you don't want to shut up?

Aliases the questions.

How do I know that there is currently a trend?

When to enter and when to exit?

Han han han….

Can you repeat? I wasn't paying attention.

Yes, that's right my dear. Since they still haven't invented the time machine, how do I
make money with trend following?

Let's take a step back.

The golden premise of trading says that “we should let the profit flow and cut losses
fast”

This I talk about in my risk management report . And you can get one here if you
subscribe to my email list. It's free okay?

Finally, the solution is there. To make money with trend following you need to catch a
trend and let the profit flow as much as you can, cutting the losses.

But how do I do it in practical terms?

If you want an example you can read it here in this post or…

Explaining here in other words.

First you have to define, according to what you think, what a trend is or at least what
appears to be a trend.

You can use numerous methods to identify trends. For example:

moving averages
Moving average slope
trend lines
Rising peaks and valleys (upwards) or descending peaks and valleys
(downwards)
Support and Resistance
congestion break
volatility break

Thus, having clear your definition of the existence of a trend, you jump into it without
hesitating.

However, the problem with trending systems is that about 60 to 70% of the time what
appears to be a trend is not. The famous Denorex trend. It seems but it is not. If you're
under 30, you don't know what I'm talking about. 🙂 you can check it here .
So get ready for the Whipsaw or fiddle.

That's why you have to cut losses SOON, because most of what appears to be a trend
is not. And since they are few, you need to stay in them as MUCH as you can.

But when in doubt, you jump on it, put a stop and let the profit flow until it bends in the
end.

AS?

Bend at the end?

In other words. When the trend ends.

Yes now you need to define what you mean by warp at the end as a rule and get out of
trend.

How do I know she bent at the end?

Again you need to define according to your beliefs when a trend ends. For example

trailing stop
Volatility
trend line break
Price co-management break in the opposite direction
And so on (this is not a method just to clarify)

Now the "secret". Doesn't matter to anyone. Psiiiiiiiii.

Doing so, the gain you make when you enter and exit at a profit will be greater than the
losses when you are stopped.

To finish and help you with inspiration to develop your system the 6 essential things to
make money with trend following that Ed Seykota teaches.

1. surf the trend

2. cut the losses
3. manage risk
 4. use stops
5. follow your system
6. ignore the news

If you have trouble memorizing, listen to this song here . help with memorization

Hug and see you next time

Peter AKA Candle.

— Source: http://www.stock-trading-warrior.com/images/trend-following-01.gif

Posted in Psychology of Trading , Trading Plan , Candle's Beliefs | Tagged Chart Analysis , Cut your
losses , Risk Management , Let your profits run , Market , Money Management , Trading System ,
Trend Following , Trend Trading | Leave a reply

Update and search results two

Posted onOctober 3, 2014

September was an excellent month for sailing.

We had record access and readers and great feedback.

But to improve even more and encourage you to come back to the site more and more,
we conducted an opinion survey. This is to make Vela increasingly useful for you. If you
are part of the list, you received the survey.

Many thanks to those who responded and to those who gave suggestions and said
what they think I should do with the candlewick.

This will give me more direction with what to do going forward.

Keep commenting, asking and asking for what you want, this is very important to keep
me on track.

So I would like to share the results of the survey with you.

There were 7 questions and the results were

 1. When you access velaepavio.com what are you looking to learn?

Answer Choices – Answers –

– Trading methodologies 65.79%

– Technical analysis 31.58%

– Journey and Confessions of a Trader 28.95%

– Trend Following 50.00%

– Motivation and personal development 39.47%

– Trading psychology 65.79%

– Macroeconomic analysis 13.16%

– Trading systems 65.79%

– risk management 50.00%

2. What is your main frustration in your development as a trader

Answer Choices – Answers –

– not be profitable 20.59%

– Difficulty in developing an own system and methodology 52.94%

– Not following my system 11.76%

– Not understanding technical analysis 0.00%

– Not knowing how to deal with losing money 0.00%

–Falta de dinheiro para operar 14.71%

–Não entender análise fundamentalista 0.00%

–Não saber gerenciar risco 0.00%

Total

3. Gostaria de ver novos formatos de mídia no blog?

Answer Choices– Responses–

–Texto somente 10.53%

–Texto e video 47.37%

–Texto e audio (podcast) 5.26%

–Video somente 0.00%

–Audio somente 0.00%

–Todas as midias 36.84%

4. Estou planejando desenvolver mais produtos e gostaria de saber quais assuntos

abaixo tem mais urgência

Answer Choices– Responses–

–Educação financeira. Como ganhar mais e guardar mais dinheiro 2.70%

–Desenvolver sistemas no amibroker (programa de backtesting) 37.84%

–Psicologia 13.51%

– Risk management and position size 8.11%

– Entry and exit techniques 35.14%

– Macroeconomic analysis 2.70%

Total

5. What format would you like the new product

Answer Choices – Answers –

– Text 35.14%

– Video class 62.16%

– Audio 2.70%

Total

6. Would you like to be notified when a new product is released, final or beta?

Answer Choices – Answers –

– Yes 97.37%

– No 2.63%

7. I would like to leave a free space here for any suggestions or feedback for me.
Please be as honest as possible. You can criticize and praise at will. Think about
what I could do more and what I should stop doing.
This was a free question, so some responded and some didn't, and I'm taking every
comment into account to satisfy the majority.

Finally, based on these results, the next steps are:

Start preparing the new e-Book which will be about How to use Amibroker to Develop
Trading Systems and one of the sub contents is to have examples of input and output
systems and techniques and how to program this in Amibroker.

About the blog content I want to focus more on the subjects in the search results, thus
balancing the posts between Trading Methodologies, Trading Systems and Psychology
which are the most demanded subjects. Secondly, talk about risk management and
Trend Following. I think this is something dynamic that can change as I post and get
comments and feedback from readers.

I want to start making videos, something I've been wanting to do for a while and it will
be a challenge for me, because it takes more time and preparation and I'll have to
develop in spoken language which is good for my own personal development. I
particularly prefer listening to a video or podcast than reading an article and I think most
people are like that, more visual and especially with trading sometimes it's better and
more tangible to show a graph, formula or spreadsheet instead of just writing.

As for my personal progress I am still finishing my Financial Advisor certification in

Australia and making some contacts in the market. Since the last update I passed the
last test on securites and managed investments which for me was the easiest of all :).
Now I still have to turn in two papers. I'm already in the middle of one and I hope that in
another month I'll finish all this and dedicate more time to Vela.

If you haven't answered the survey yet and would like to give your opinion, here's the
link .

And as always I am open to suggestions and feedback, just send me an email or

comment here on the blog.

Hug

Peter, AKA Candle.

Posted in Financial Independence , Journey , Psychology of Trading , The Big Picture , Trading Plan ,
Candle's Beliefs | Tagged Risk Management , Let your profits run , Market , Psychology of Trading ,
Trading , Trading System , Trend Following , Trend Trading | 2 Replies

Market Wizard – Marty Schwartz 6

Posted onMarch 3, 2014

“I had been a security analyst for eight years and it had become
intolerable. I knew I had to do something different . I always knew
I wanted to work for myself, have no clients, and answer to no one. That,
for me, was the ultimate goal. I had been brooding for years, “Why
wasn't I doing well when I was groomed to be successful?” I decided it
was now time to be successful ” – Marty Schwartz.

The Interview with Marty Schwartz was without a doubt the one that made my jaw drop
the most when I read it. He really is a very interesting trader model, as he is a highly
profitable trader, with very low drawdowns. Just to give you an idea, his monthly return
is around 10 to 20% with a maximum drawdown of 3% per month that occurred once at
the time of the interview. He never had a negative year.

In the first year as a trader he made $100K in the second $600K and from then on he
never went a year without making less than 1 million a year. His starting capital was
around 90 thousand which he borrowed from his father-in-law. One thing he would do
every year was start the account with a few hundred thousand about $200K to $300K
and turn that money into 2 to 3 million at the end of the year. Then he would buy gold,
government bonds, real estate with this money and leave the 200 – 300 thousand in
cash to start another year as a zero trader. This is because, if he continued earning
20% ​per month in 10 years he would be controlling the US GDP :), if you understand
compound interest. Maybe he did this, because he understood his size as a trader and
felt comfortable that he could enter and exit the market quickly, as he was a day trader
who operates in the short term. Still operates in 2014.

Re-reading the interview here are my highlights

Automated trading systems: At the beginning of his career as a trader, he had a bad
experience with systems, because he met a programmer who developed a system that
practically made him lose all his money and he never believed in systems again and
followed the path of discretionary trading from there onwards becoming very skeptical of
automatic systems to the point of becoming deeply irritated every time Jack made any
reference to trading programs.

Synthesizer: He calls himself a synthesizer, as he has a great ability to absorb abstract

and complex concepts and simplify them into a logical and simple methodology that
makes sense to him. So he developed his own methodology by studying and observing
price behavior along with developing his intuition.

Ego: The only way to be profitable in trading is to kill your ego. It is paramount to
accept when you are wrong. For him, many people lose in the market for the simple fact
that they prefer to be right than to make money.

Auction vs. Computer: Marty started his career operating on the open outcry trading
floor, but over time he realized that he had more clarity of what was happening in the
market when he would go up to his office at lunchtime and look at the quotes on the
computer. So he became a trader who operates from his own home as time.

Operate small: This is an impressive characteristic of all the Market Wizards that I've
already made a post here on the blog. He also decreases the position size when he has
a strong losing streak.

Consecutive Profit: Another rule that Marty has is when he makes A LOT of money he
prefers to take a little break and enjoy the money, because he realizes that if he
continues to trade he becomes relapsed and ends up losing. This is because he
realized that big losses were always preceded by periods of big gains.

X of his methodology: Among other rules, he pays a lot of attention to moving

averages, which for him indicate the direction the market is going and seeks to identify
low-risk entry points where he can increase his risk-return ratio. It also looks at
correlations between assets like the bond market and equities and the divergence
between bond markets as a tool for confirming whether to enter or exit the market. He
adheres to the belief that when in doubt he liquidates the position, because when he is
in the box his thinking is much clearer and that he always has the opportunity to return
to the market if he wants to.

Let the profit flow: According to Marty, he considers that he is very good at cutting
losses, but that he still has to improve a lot in letting the profit flow and recognizes that
he takes profit prematurely many times. He says that every time he takes a profit he
feels like the cash register makes a noise in his mind. CASHING!

Military education: Marty served in the U.S. Marines and credits his training with
being able to work under pressure without stalling. So he explains how it was possible
to get out of a long position on Black Monday in 1987 when the market had its worst
percentage drop in history. At the end of the day he ended up losing only 300k instead
of the 5 million that would have been his downfall.

Diversification: Despite being an aggressive trader Marty is super cautious and risk
averse thinking that the system could collapse at any time. because of this he
diversifies his money into various banks, gold deposits and government bonds. This is
because if something bad happens he always has a place to start again.

Trainees: He tried to emulate your trading and taught the methodology to several
trainees, but without success. He said that he cannot transfer his stomach to his
employees since he is a discretionary trader.

Managing other people's money: The interview was done in the late 80's and until
then Marty was only managing his own wealth and was only thinking about opening a
fund with other people's money. The interview doesn't say this, but not his auto
biography Marty tells that it was a TOTAL disaster and he almost lost his life after
ending up in the hospital due to so much stress. There are people who were born to
manage other people's money and some, like him, weren't.

Success: It just depends on a change of attitude that he made. No matter how smart
he was, he was not successful until the day he made a drastic decision in his life.
If you really want to go deeper into Marty's study, I recommend reading his
autobiography that tells in detail his trajectory and process of becoming a champion
trader.

He recently gave a lecture that is on YouTube worth gold

Posted in Library , Reflection , Uncategorized | Tagged Graphical Analysis , Bear , Cut your losses ,
Drawdown , Risk Management , Let your profits run , Money Management , Trading System | 6 Replies

Market Wizard – Bruce Kovner 6

Posted onDecember 20, 2013

“Nowadays, everybody is a chartist, and there are a huge number of

technical trading
systems. I think that change has made it much harder for the technical
trader” Bruce Kovner

These Market Wizards interviews are one better than the other. If you've already read
the book, I recommend re-reading it. I for one am re-reading for the third time.

What I'm realizing is that every time I read more NEW things I absorb. I remember that
the first time I read it my jaw dropped with some aspects like the absurd results that
Market Wizards achieved. For me it was a total paradigm shift.

This book was what piqued my interest in researching more about trading. What
happens is that after years of research and understanding more of the market I am now
understanding better what traders want to say in interviews and I am getting new
insights and new ideas to improve my trading.

Bruce Kovner was a disciple of Michael Marcus . Marcus right away he already knew
that Kovner would be a success. To start with the interview where Marcus was looking
for an assistant. However, after interviewing him Marcus liked it so much that when he
called to offer the job he said he had two pieces of news. One bad and one good.

The bad thing is that he would no longer be hired as an assistant and the good news is
that he would be hired as a full trader!

Bruce Kovner worked at the Commodities Corporation, as did Ed Seykota, Paul Tudor
Jones, Marty Schwartz and Louis Bacon.

Kovner retired from trading in 2011, but the company he founded in 1983, Caxton
Associates , still manages around $8 billion.

Today Kovner is more occupied with philanthropic activities and lives in this small house
on 5th avenue in New York. He is currently at #95 on the list of the richest guys in the
USA.
 — 1130 Fifth Avenue, Bruce Kovner Residence. Source: Wikipedia

Here then are my insights from the interview that spoke to my heart a lot.

Intuition and emotions: When he perceives that the market is doing something that is
emotionally disturbing and he does not understand what is happening in the world, then
the best thing he does is to close all positions. According to him, it is not worth being
caught in a situation where you lose money by not understanding what is happening in
the market. It is important to have extreme emotional balance to be a trader, as
emotional levels can be too strong. This is because losing millions in the market is
commonplace when you become a big trader. If you have a problem losing such an
amount, better not to be a trader.

Hard work: One thing he learned from Michael Marcus who once said that if he
"applied himself to the markets he could make millions". Kovner believes that if you
don't work hard you will hardly be a competent trader.

Mistakes: Traders have to be willing to make mistakes. There's nothing wrong with
making mistakes.

Imagination and Scenarios: Traders must have the creative mind to imagine possible
directions the market could take and have this planned in each trade.

Coaching traders: Kovner believes it is possible to coach traders to be successful, but

he has not had much success in this area. He even trained several traders and only a
few ended up being very good. The key points, he said, were [mental] strength,
discipline and a willingness to step into a position that no one is comfortable taking.

Technical analysis vs. Fundamental analysis: Without a doubt Kovner is a

fundamentalist guy who looked at the chart to confirm the scenarios he was expecting.
Kovner makes the analogy of the doctor with the thermometer. Just as the thermometer
helps the doctor to diagnose the disease, technical analysis helps the trader to
diagnose the market, but the fundamentals are more important, as they are the ones
that will define the macro vision and the possible directions of the market. According to
him, the trader should look at all aspects of the market that give him a competitive
advantage.

Technical analysis is a good tool to explain the past and not the future.

Surprise: When a market movement occurs in a strong and surprising way, that is,
nobody is expecting it, then it is more likely that the movement will continue in a trend.
Mainly coming from a congestion. Kovner gives examples of governments that may be
acting in the commodities market and nobody is aware, only the insiders. Kovner gives
the example of the Russian government operating in the grain market.

The same logic applies the other way around. When everyone is expecting something
and something happens, there is a high chance that the market will reverse.

Cut losses: Just like Marcus he cuts the bets when he is on a losing streak.

Automatic systems: Does not believe in automatic systems, as markets are

constantly changing. Confirming your discretionary bias.

Stops: Before entering any position he already knows where he will leave if things do
not go as expected. Position size is calculated based on where the stop is and the stop
is placed according to technical analysis. The Stop is always placed in a place not too
close to the entry to give the trader more room to work and not in a very obvious place
that will make the stop easily executed.

Worries: The ONLY thing that worries him is bad risk management, otherwise
NOTHING worries him.

Forex and 24/7: At the time of the interview Kovner had monitors and screens all over
his homes. Including the field. And during the night he had assistants monitoring the
market 24 hours a day. His personal assistant was only allowed to wake him up two
nights a year. Only in cases of war or if a prime minister resigned, for example. This is
because, these events can cause big movements in the Forex market. Otherwise the
assistant made decisions on scenarios that were updated weekly. At the time of the
interview, around 1990, Forex accounted for 60% of the volume traded by him. The fact
of operating 24 hours a day didn't bother him, because it was “in his blood” and he
enjoyed it a lot.

Trend Following : You have the same opinion as Michael Marcus. Trend Folowing was
very good in the 70's and then it just took a beating. Mainly in the commodities market.
It is worth remembering that the interview was in 1990 and at the time Richard Denis, a
great trend follower, was taking so much beating that he decided to retire after losing
50%. He believes that because many traders use similar systems the market is more
vulnerable to false break outs.

Advice for beginners: The most IMPORTANT thing is risk management.

— Bruce Kovner. Source: Forbes

Posted in Library , Fundamentals , Psychology of Trading , Reflection , Trading Plan | Tagged Graphical
Analysis , Risk Management , Let your profits run , Market Wizard , Trading System , Trend Following |
6 Replies

Launch of the “Complete Guide to 35

Backtesting”
Posted onApril 28, 2013

Hello readers,

I already mentioned here that I was writing my first e-book.

So finally it's ready for release!

The e-book is: Complete Backtesting Guide: All about the testing process,
validation and optimization of trading strategies

What motivated me to write is to help those who are interested in trading systems and
know their importance, but who are not sure that the backtesting process is done
correctly.

So I put all my backtesting knowledge and experience into this e-book, providing every
step of the backtesting process as done by Hedge Funds and professional traders.

My goal is that by reading the e-book at the end you will be able to develop a trading
system following a rigorous process. There I give all the tools that professionals use.

I know that a lot of people talk about backtesting, but it's hard to find someone who
explains the process step by step with practical examples.

In the e-book I use a real system and go step by step how the system was tested, with
the rules, charts, parameters and results.
If you want to know more, visit the sales page by clicking on the e-book below.

I hope you like and enjoy

Hug

Candle

Posted in Library , Trading Plan | Tagged Graphic Analysis , Cut your losses , Drawdown , Ebook ,
Expectancy , Risk Management , Let your profits run , Mechanical Trader , Trading Secrets , Trading
System | 35 Replies

a surprising revelation 7

Posted onOctober 11, 2011

I invested time after the period closed for balance to re-test my short system and do an
analysis if I trade long and short.

At the beginning I was very excited about my long system, but as soon as I started
trading I had a bad sequence of losers (whipsaw) which took me a little off track and I
decided to re-analyze the Back Test, especially the Drawdown part (DD).

And that was my startling revelation. Even though the system had a CAR/MaxDD ratio
that I was happy with, I made the mistake of not taking a look at how long the DD would
take if I entered one and how many trades it would take to exit the DD.

Despite the maximum DD being only 5.66% with a position sizing of 1% of equity, the
worst DD took 443 calendar days or approximately 14 months. Being a long system the
worst DD occurred in bear markets. Being them

03/13/2002 to 02/20/2003 - 352 days

06/20/2008 to 07/2/2009- 442 days

The first DD lasted 17 trades and the second 19. The Long system gives an average of
15 trades per year or a little more than one trade per month.

So after reviewing the short system that had an execution problem due to the short
stops that were stopped in the after market, I am now more satisfied with the adjusted
rules. The system “worse” the results, but the idea here is to use the system in
conjunction with the long one for two reasons. Have a hedge cushion in bear markets to
decrease DD and DD duration and increase trading frequency to increase compound
interest.

so here is the analysis of having the systems alone or combined:

Now to visualize the equity curve with a hypothetical investment of 10,000 what the
curve would look like.

See that the maximum DD in duration are inside the rectangles.

See that the short system behaved “well” in the bear markets of 2001-2002 and 2007-
2008 and in periods Bull was flat and falling a little. This is because the system operates
a stock index (S&P 200 Australia) which has a Bull bias.

I remember Roberto commenting on having a short system together with a long one to
improve overall performance and that's what happens in the Back test.

I went back to trading the two systems with more confidence with a very tight risk
control (1% of equity) just to have confidence in the system again and to know myself
better how adherent I am to the system.

Of course, the intention is to make money, but I want to focus much more on the
process at the moment of discovery and self-knowledge, because I will only be a
successful trader the day I discover the system inside me and if I am willing to feel the
feelings that comes with my system that deep down is in my DNA.

For this purpose, I launch the challenge of following 30 signals mechanically and I will
post on Twitter the entry orders and daily trailing and profit target adjustments.

I am currently in a long trade that is earning 1.2R and had a MAE (Maximum Adverse
Excursion) of 1.74R. It is part of being trend following to return to the market to let the
profit flow.

I hope you follow me on Twitter if you want to know my trading journal as it happens.

I adjust my orders and stop when the market closes around 5pm Adelaide, Australia
time.
Posted in Trading Psychology , Trading Plan | Tagged Bear , Bolsa , Bull , Cut your losses , Drawdown ,
Expectancy , Risk Management , Let your profits run , Trading Psychology , Mechanical Trader ,
Trading System , Trend Following , Van Tharp | 7 Replies

In search of self knowledge 9

Posted onSeptember 30, 2011

Today I finished reading the fourth and final book I chose to read on my trading
sabbatical.

The Inner Voice of Trading, Michael Martin .

Clip: http://martinkronicle.com/wp-content/uploads/2011/08/frontIVT.jpg

What interested me about the author was the fact that he is a disciple of Ed Seykota
and has a blog that discusses trading and commodities. As I am interested in both
things, I started following him on Twitter and reading his blog, which has excellent
content, especially the podcast interviews, which I listened to all of them and
recommend.

Speaking of Twitter PLEASE follow me on Twitter . I only have two followers, one of
which is a pickaxe.

I thought that Martin's book ended my moment of reflection with a golden key.

The book itself didn't add anything I didn't already know, but most important of all is
understanding a trader's journey in the context of what's going through my head. And it
is also important to read the book within a context. Sometimes the timing of the book
isn't right, but for me it fit like a glove and the timing couldn't be more opportune.

Again, these are simple concepts and believe it or not, they only work if they are
followed with discipline.

The summary of the book for me was the author hitting the key to KEEP YOUR
LOSSES small and that translates into RISK MANAGEMENT.

But more than keeping losses small is understanding the implications and emotional
impact of taking VARIOUS and ABUNDANT losses. And at this point the author
dedicates a chapter that talks about surrendering to the market and admitting that there
is a point where we have to transfer the risk to other traders, otherwise we will destroy
our capital while keeping our ego intact.

On the last page of the book there is a paragraph that explains well what the author
speaks exhaustively. CUT YOUR LOSSES, CUT YOUR LOSSES. No joke of the 166
pages I think it should have the word CUT YOU LOSSES or MANTAIN YOUR LOSSES
SMALL once every two pages.

Paraphrasing the paragraph in Portuguese it goes like this: “if you want to have the
chance to try to consistently grow your capital in the long term you have to accept the
feelings that come with the inevitable fall of your capital in the process”

No bichisse here, as Hugo says, the crux of the matter here is that trading is PHODA
because of the losses. If it wasn't because of the losses it would be EASY to trade.
Since I started studying the subject and then when I started to develop systems and put
real money on the line, the hardest part is accepting losses and the fact of admitting
that I was wrong in my analyzes and that the trade I thought would work turned out to
be wrong. . And to say that systematic trading eliminates the emotional. BULLSHIT. It
will bring you to see.

This time comes the great truth about trading: CUT YOUR LOSSES. This is the most
important part. At this point the book did me good for having insisted a lot.

The only thing common to all trades regardless of method, time frame, instrument etc…
is RISK MANAGEMENT.

As talking about EXHAUSTION is necessary to understand a concept I will remember

Paul Tudor Jones who when interviewed in the 1987 documentary Trader he says that
the thing that worries him most is not losing money. And this is someone who has had
multiple years of 100%+ yields at the time.

Ed Seykota in his interview on Market Wizard says that the three most important things
are Cut your losses, Cut your losses and Cut your losses.

If you take ALL Market Wizards they say that honoring stops and cutting losses is the
most important part that ALL have in common.

It is highly unnatural to admit that you are wrong. That is why many of you are here
reading my blog to see if there is any tip on what is the best time to enter the stock
exchange and what to do now that the market is falling, but the best “tip” I can give you
is : CUT YOUR LOSSES, admit your mistake and don't try to be a hero, as Tudor Jones
says.

I didn't comment here on the blog, but I read a book by Larry Williams a few months
ago. The Long Term Secrets of Short Term Trading . I recommend reading. Good
technical insights in the graphic part, systems and also the psychological part.

One of the things that stuck with me in the book was when Larry talked about loss and
how he views it.

Larry Williams says that every time he places a trade and sets a stop he ALREADY
CONSIDERS that money as GONE money. Like if he risked 1% he is already 1% down
when he places the trade. So he knows that the trade from then on will only have an up
side. I thought that was the BEST part of the book. A real AHA!

I confess that the most important part of acquiring the skill of taking losses is not trying
to fight the feelings that come with the loss, because as Ed Seykota says in his
psychological methodology Trading Tribe Process® that feelings have positive
intentions and one of the positive intentions of fear is risk management. If you try to be
a hero and say that you are not afraid, your subconscious will make your system suffer
a GIANT loss so that your conscious mind understands the need for risk management.
And quoting Seykota's most famous quote in Market Wizards “Everyone gets what they
want from the market… some wants to lose”

In this sense Martin's book has put me on the right track to be successful as a trader
and focus on what's important I think it was one of the best books I've ever read on my
journey and quest for clarity and inner knowing.

In short, technical knowledge, although important, will not make you successful, but
how much you know about yourself will.

Another point that the book hits hard on is that you will only be successful as a trader
when you manage to align inner knowledge and your trading system. When this
happens the execution part will be effortless and hesitant.

This made me re-read a chapter in Seykota's Trading Tribe when he talks about the
trading model he uses for tribe members. There he says that “The trader who wants to
be successful must have the intellectual curiosity and honesty to develop a profitable
trading system and have the discipline and inner will to follow it”.

Logically, this is not a simple process, but a journey that he puts in 5 steps. As if it were
a continuous process of inner discovery, being

1- Definition: Part of internal knowledge work and definition of what is your probable
system based on your feeling. This is the “discretionary” part of your system where you
choose your preferences such as time frame, frequency, market, volatility, risk appetite,
etc. It depends on one's personality.